Updated Non-profit Tax Guidance: Gifts-in-Kind and Donor Acknowledgement

Published on December 16, 2020 by Cory Faulkner in Not-for-Profit, Tax Services

Gifts-in-Kind and the Importance of Donor Acknowledgement of these gifts for Taxes Purposes

Happy Holidays from the Barnes Dennig family to yours. As we are quickly approaching the end of 2020, it’s a good time to evaluate recent standards updates and implementation plans. While a lot of focus has been spent recently on the implementation of standards for Revenue from Contracts with Customers and Leases, the new standard for gifts in-kind should start to be considered for financial statement and tax planning purposes.

ASU 2020-07

In September 2020, Accounting Standards Update 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, was issued by the Financial Accounting Standards Board. The purpose of the update was to provide more transparency and context to gifts-in-kind of goods and services through “enhancements to presentation and disclosure.” The required changes include:

• Presenting the gift-in-kind in a separate line on the statement of activities apart from contributions of cash and other financial assets.

Not-for-Profit Entity A
Statement of Activities
Year Ended June 30, 20X1
(in thousands)

		Without Donor Restrictions	With Donor Restrictions	Total
Revenues, gains, and other support:
	Contributions	$8,640	$8,390	$17,030
	Contributions of cash and other financial assets	$6,790	$7,430	$14,220
	Contributions of nonfinancial assets	$1,850	$960	$2,810

• Disclosing gift-in-kind by category that depicts the type of good or services received.
• Disclosing a description for if the gifts are intended to be monetized or utilized by the nonprofit. If utilized, a description will be required of the programs or activities in which the gifts are intended to be used. Additional disclosures of the policy in place regarding the monetizing of contributed gifts.
• Disclosing any donor restrictions on the gift.
• Disclosing the fair value measurements techniques and markets utilized (if donor restriction on gift).

	Revenue Recognized	Utilization in Programs/Activities	Donor Restrictions	Valuation Techniques and Inputs
Food	$85,407	Natural Disaster Services; Domestic Community Development; Community Shelters	No associated donor restrictions	NFP K estimated the fair value on the basis of estimates of wholesale values that would be received for selling similar products in the United States.
Medical Supplies	$90,389	Natural Disaster Services	No associated donor restrictions	NFP K estimated the fair value on the basis of estimates of wholesale values that would be received for selling similar products in the United States.
Pharmaceuticals	$111,876	International Health Services; Natural Disaster Services	Restricted to use outside the United States	In valuing contributed pharmaceuticals otherwise legally permissible for sale in the United States, NFP K used the Federal Upper Limit based on the weighted average of the most recently reported monthly Average Manufacturer Price (AMP), that approximate wholesale prices in the United States (that is, the principal market). In valuing pharmaceuticals not legally permissible for sale in the United States (and primarily consumed in developing markets), NFP K used third-party sources representing wholesale exit prices in the developing markets in which the products are approved for sale.

The standard will be required to be effective for annual periods beginning after June 15, 2021 and for interim periods within annual periods after June 15, 2022 on a retrospective basis with early adoption permitted.

Accounting Best Practices

There are several best practices nonprofits can adopt now to improve their recordkeeping and accounting for gifts-in-kind as this standard is implemented:

1. Create a gift acceptance policy for the types of goods and services the organization is willing to accept and not willing to accept. If appropriate, some forms of gift may require prior authorization from the Board of Directors or legal counsel before acceptance (i.e. real estate).
2. Establish a consistent process and written policies for determining the fair value of the gift. Fair value is the price that you’d receive to sell an asset or be paid to transfer a liability. Asking the donor for their suggested value is a great starting point, but make sure to corroborate that value with other sources of information, such as online searches for current pricing, asking a competitor for a quote or using a salary survey to determine the hourly rate of a skilled professional who donated a service.
3. Using a consistent form to document the necessary accounting and reporting information for in-kind gifts will improve the recordkeeping for these donations, especially when there are multiple people soliciting and accepting gifts-in-kind from donors. This form should include information about the gift and its condition, the donor, and how the value of the gift was determined.  In the case of a large or complex gift, a separate agreement with the donor may be necessary to outline the terms and expectations of the gift arrangement.

Tax Reminders

The rules for acknowledging donations of gifts-in-kind (noncash donations to an exempt organization, such as fixed assets, supplies, and food) have been in place for many years.  Here are a few key reminders to ensure your organization is operating within the IRS guidelines as well as fulfilling donor needs:

1. Valuing the donation for the donor’s tax return is not the responsibility of the nonprofit organization. Providing a detailed description of the item(s) received and date of receipt will provide the donor with the information needed for their personal return. Remember to indicate the value of any goods or services provided to the donor in return for that donation, if any, or clearly state that no value was provided to the donor.
2. For donations of $5,000 or greater, an appraisal is required for individual gifts received. Remember, this is the obligation of the donor and the cost of which does not have to come out of the nonprofit’s pocket.  These appraisals must be from a qualified source and occur within 90 days of the gift’s receipts by the nonprofit. Use IRS Form 8283 to provide the necessary information to the donor.
3. If your nonprofit accepts donated vehicles, the reporting details and timely receipt of the donation amount to the donor is imperative.  The reporting requirements apply to any organization if they receive a qualified vehicle contribution with a claimed value of more than $500.  An organization who receives a qualified vehicle donation must utilize Form 1098-C, and timely provide documentation to the donor.   There are various required dates that an organization must provide the relevant documentation to the donor, some as soon as 30 days after the contribution of the vehicle.  Please refer to the instructions on Form 1098-C for the most recent information.
   • Donors may claim a deduction of the vehicle’s fair market value as of the date of the contribution, under the following circumstances:
     • The charity makes a significant intervening use of the vehicle, such as using it to deliver meals on wheels.
     • The charity makes a material improvement to the vehicle, i.e., major repairs that significantly increase its value and not mere painting or cleaning.
     • The charity donates or sells the vehicle to a needy individual at a significantly below-market price, if the transfer furthers the charitable purpose of relieving the poor and distressed or underprivileged who are in need of a means of transportation.
     • No goods and services are provided to the donor in exchange for the donated vehicle.  Generally, the amount of your charitable contributions is reduced by the value of the goods and services provided.

Contact Us

If you have questions about this guidance and you’d like to talk to one of our dedicated non-profit tax and accounting specialists, contact us here or call  513-241-8313. We’re here to help.

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